Build up or out? Auckland needs both

ScreenHunter_02 Jun. 14 21.43

By Leith van Onselen

Hayden Duncan, the head of New Zealand’s largest real estate company, Harcourts, has provided an interview to Interest.co.nz, in which he expressed alarm at Auckland’s expensive home prices and urged the city to build up instead of out in order to cope with population growth and improve housing affordability:

The average price of homes sold in Auckland by Harcourts last month was $721,553…

“There’s no doubt that’s a frightening number,” Duncan said.

“It’s not being driven by cheap money, it’s not being driven by reckless borrowing, it’s not speculation,” he said.

The main driver was the region’s population growth, coming both from within New Zealand and overseas, which was putting pressure on an “under invested property market,” he said.

He saw the solution as more intensive residential development rather than building more houses further out into the countryside.

We have to go up, we can’t keep going out, he said.

How exactly would restricting Auckland’s urban footprint and forcing more and more citizens to cram into the existing urban area achieve a more liveable city and more affordable housing?

Constraints on land supply were slammed by the New Zealand Productivity Commission, whose 2012 report into housing affordability cited a body of evidence showing that strict policies of urban containment and slow development approval times had adversely affected the rate of new home construction in Auckland, as well as significantly inflated land and housing costs. The Commission later followed-up with further research showing that Auckland’s urban growth boundary (called the “Metropolitan Urban Limit” or MUL) has significantly increased urban land prices in general, with land prices in the lower part of the distribution worst affected.

As it currently stands, nearly all of all Auckland’s regional rural land is used unproductively as lifestyle blocks, which are in effect super low density urban residential lots appropriate for subdivision. In fact, data published in 2012 by Interest.co.nz revealed that the number of lifestyle blocks had exploded across New Zealand, increasing by around 75,000 to 175,000 over 13 years, and consumed roughly 873,000 hectares (8,730 sq km) of land, compared with only around 180,000 hectares (1,800 sq km) of land used for urban uses.

We also shouldn’t forget that Auckland already has one of the densest populations in the Anglosphere (see next chart), as well as severe congestion problems, in part caused by cramming its 1.5 million population into such a small area. Again, how would piling more people into the existing urban footprint improve Auckland’s livability? And how would affordability be restored through densification when the sheer high cost of existing housing means that buying it, demolishing the buildings already on it, and buildings new ones, cannot be done at a price that lower income buyers can afford?

ScreenHunter_3501 Jul. 28 13.34

Ultimately, the debate about Auckland housing shouldn’t be about whether to build up or build out. Rather, Auckland should be aiming to provide more of all types of development – fringe houses, town houses, and apartments – while reducing the system-wide cost of land/housing. This way Aucklanders will achieve genuine choice – not merely the choice between renting or buying an expensive shoebox in the sky.

[email protected]

www.twitter.com/Leithvo

Unconventional Economist
Latest posts by Unconventional Economist (see all)

Comments

  1. BubbleyMEMBER

    It had been over twenty five years since I was last in Auckland. On my return I was gobsmacked at how little it had changed.

    As a kid I grew up in the inner city and nothing has changed in the intervening years. There are very few high density apartments, still thousands of 1/4 acre blocks with tiny post war houses on them and massive area’s of under utilised land.

    Talking to a 20 year old nephew about the lack of apartments, he seemed surprised, his response was “maybe nobody wants to live in them?” My response was “Maybe they are not available.”

    The land is very poorly used there. The ACC has a lot to learn.

    • If it wasn’t for the traffic congestion, you could live anywhere outside of Auckland and commute in. Hamilton is about an hours drive from the outskirts of Auckland.

      • BubbleyMEMBER

        The city is built on the bottle neck between the two harbours. The hour glass shape is always going to slow things down.

    • “……still thousands of 1/4 acre blocks with tiny post war houses on them…..”

      Are you kidding? Where?

      Kiwis hocking off their backyard to a developer to whack up 3 dogbox townhouses is one of THE big trends of the last 30 years, hence Auckland’s already-impressive density and traffic congestion.

      Not only is it the 2nd densest urban area in the Anglosphere, after Toronto, which has nearly 5 times as many people, it is denser than every French urban area except Paris, significantly denser than Lyon, say; and similar density to half of Germany’s cities.

      The “Auckland = low density” myth is really much worse than a myth, it is propaganda and bordering on a deliberate lie. Comparable US cities like Indianapolis, Nashville and Jacksonville are low density, i.e. around 1/3 of Auckland. They also have house prices around 1/3 in real terms, and a TomTom Traffic Index congestion delay at peak of around 1/3 as bad as Auckland’s, suggesting further correlations that are the total opposite of the lies peddled by the anti-sprawlistas.

    • Strange Economics

      Dont forget Melbourne, where there’s a 3D urban growth boundary of 1 storey in the inner suburbs .

      where Plan Melbourne and the local councils have guaranteed high house prices, by preventing more than 1-2 houses per block – ie no medium density apartments or townhouses even – for 20 km from the centre.
      Dogbox apartments for export in the CBD are not part of the market for the locals.
      Guaranteed minimum price of $ 800k for inner and medium city neighbours (and lots of Liberal electorates protected by the NIMBY vote, since non-residents can’t vote !)

  2. notsofastMEMBER

    There is one other option for Auckland to consider.

    Building elsewhere.

    This is something that should also be seriously considered for Australia, with 80% of the population concentrated in the major cities.

    • Exactly. I constantly find reasons to admire the intuitions of Americans from the bible belt and the south of the USA, ironically they are the most sneered at people in western civilisation, by the PC “sophisticates”. They have worked out long ago that if you don’t want apartment blocks in your backyard and you want your kids to be able to afford their own house one day, you “let houses be built somewhere else”, which means “beyond the existing urban fringe”. Possibly out of sight of existing built-up areas by judicious use of nature reserves as buffers.

      It is utter bulldust that the consequences are not worth the affordability and the preservation of existing neighbourhoods. Congestion delays are lower, average commute to work times are no higher, and productivity is higher than comparable decades-contained cities like the UK’s ones.

      • yup – left wing elitists love their trendy left wing “progressive” issues while they dine out on the fruits of the infrastrucutre and housing provided by previous generations not so averse to development. Their kids will be ok as they will inherit, and others kids from lesser backgrounds wont mind living in apartments cause thats the way of the future for Petes sake.

  3. Picky, I know, but I’m not sure Hayden Duncan is the head of Harcourts’! Paul Wright in Christchurch, and Mike Green on the Gold Coast, are the owners. They employ Hayden…..

  4. Hugh PavletichMEMBER

    HOUSING … JOURNALISTS NEED TO ROBUSTLY QUESTION PROPERTY COMMENTATORS

    More apartments the solution as Auckland house prices reach ‘frightening’ levels, says Harcourts chief | interest.co.nz

    http://www..interest.co.nz/property/71138/more-apartments-solution-auckland-house-prices-reach-frightening-levels-says-harcourt

    Hayden Duncan of Harcourts, Real Estate Agents, needs to be asked why there is no new starter housing stock being supplied on the fringes of the New Zealand metros for about $NZ1,000 per square metre all up (serviced lot & construction costs) … as the Andrew Atkins poster THE REAL DEAL from early last year clearly illustrates …

    http://2.bp.blogspot.com/-Wvy3jZaQ3rs/UTEmx-GDJ-I/AAAAAAAAAXE/mA3sBLWlMho/s1600/the_real_deal.JPG

    The problems and solutions are well known … Focus On Restoring Housing Affordability …

    http://www.scoop.co.nz/stories/PO1305/S00325/focus-on-restoring-housing-affordability.htm

    It is well past time journalists did their homework on the structural impediments to new housing construction … and refrained from asking property commentators patsy questions.

    Hugh Pavletich
    http://www.PerformanceUrbanPlanning.org

  5. There is a serious disagreement among economists currently, that is doing untold damage via urban planning false assumptions, concerning whether “building up” makes housing more affordable.

    There is NO evidence, repeat, NO evidence, that this is the case in any city in the world where they are constraining fringe growth.

    Hong Kong is 2.5 times as “built up” as Manhattan and it is significantly more expensive.

    Vancouver has been ramming through permissions for building “up”, over-riding NIMBY opposition, and it has done NOTHING for the affordability of floor space.

    If you want to see the most affordable CBD office rents and apartments and condos in the world, look at Houston. In a city with no UGB (and no proxy for one) the land rent curve is kept low and flat, and building “up” does not increase site rent automatically like it does when the land is rationed and the land rent curve is elevated, by a UGB. Increased site rents at the city centre, in a free-market urban land market like Houston, is purely the result of agglomeration economies, productivity, and income increases, to which overall city growth contributes. These increased site rents are moderate and incremental over a long time frame and never reach anything like the absurd heights that are the norm in distorted, speculation-driven urban land markets.

    Manhattan was similarly a remarkably affordable location back when the NY urban area’s surrounding suburban development was sprawling at even lower density than Houston. See Fulton, Pendall et al “Who Sprawls the Most”. Manhattan is still more affordable than most other “global cities” for this reason. If you look at RE sites to see the prices of property within 40 minutes train ride of Manhattan, you will get an inkling of how “option values” work in an urban economy.

    http://www.realtor.com/realestateandhomes-search/Essex-County_NY/beds-1/baths-1/type-single-family-home,condo-townhome-row-home-co-op,other/price-92000-na/sby-1?pgsz=50

    • Yes – 50 minutes on the hudson river line from Grand Central and you are deep in small semi rural towns like Cold Springs.

      In Sydney you are not even at Penrith.

      Even with Wall Street many parts of the 5 boroughs of NYC are reasonable compared to Sydney

  6. The comment on Lifestyle Blocks makes me wonder how the land surrounding Australian cities is actually used. One of the main justifications for urban growth boundaries is to limit the loss of productive farmland to sprawl, but when I look at Google maps, or even driving out of Sydney, I wonder how that claim really stacks up. A lot of that land just appears to be being held speculatively, or as giant suburban blocks.

    So would removing green belts really make that much difference? Or would we be more like Germany, where towns just transition immediately into farmland, with little of this semi rural fringe that we have here.

    • New York is less dense than Auckland. I’ve lived and worked in both. Manhattan may be as dense as Auckland , but the rest of the city is progressively less so.

      • Are you delusional?! I can think of absolutely no part of Auckland that is anywhere near as dense as any part of Manhattan. The figure for New York above is for the tri-state area which is in no way representative of New York City proper. The tri-state area stretches up to 130 miles or a 2 1/2 hour drive out of New York City, and includes vast, vast swathes of completely rural areas. You could drive south from I-90 in Columbia County down through lower New York State, through Manhattan and then east out to Montauk on Long Island, a drive of more than 5 hours, and remain completely within the area this figure is calculated from.

        The density of the 5 boroughs is as follows:
        Manhattan 69,760/sq. mi.
        Brooklyn 35,870/sq. mi.
        Bronx 33,122/sq. mi.
        Queens 20,578/sq. mi.
        Staten Island 8,045/sq. mi.

        The citywide density of New York (all 5 boroughs INCLUDING much lower density Staten Island) is 27,486/sq. mi.

        By comparison, the densest census unit in Auckland is ‘Auckland Central East’, with a density of 4,229/sq. mi., almost half that of NYC’s lowest density borough, Staten Island.

        I live in Clinton Hill in north-central Brooklyn, a comparatively (to surrounding neighborhoods) quiet rowhouse neighborhood. Even here, the density is 48,077/sq. mi.

        I find it so hard to believe you’ve spent time working in Manhattan if you in any way find it comparable to Auckland, density-wise.

        • Pipe down. Janet is probably referring to the combined NY/NJ urban area, which covers some 18 million people and has a population density of 2,054 people per square kilometre. This appears to be less than Greater Auckland.

          To focus only on Manhattan or the five boroughs is classic cherry picking.

      • “To focus only on Manhattan or the five boroughs is classic cherry picking.”

        hahaha you don’t think your graph is cherry picking at all?? the 5 boroughs IS new york city!!

        continuing to reference the same figure (without engaging with the issues regarding that number) seems wilfully obtuse

      • I know, I referenced that above.

        The tri-state area is in no way the correct comparison to use for Auckland, unless with Auckland you are also going to include the likes of Hamilton and Whangarei.

        No reasonable measurement of New York City includes rural areas 2 1/2 to 3 hours drive and 225+ km away.

        Regardless of any of that, to compare Manhattan’s density to Auckland is absurd. Manhattan is one of the most densely populated areas on the entire planet.

      • You should search for driving directions between New York, NY and say Allentown, PA or Hudson, NY. Follow the blue line on satellite view, investigating the landscape between them and how urbanized it is, and then tell me how it makes sense to include these places in a measurement of NYC’s density.

  7. Hang on. Hasn’t NZ got amazing macro prudential regulations that prevent property price increases and speculation …….

  8. this chart about population density is worse than a lie because it seems true. these stats are based on completely arbitrary and diverse definitions of city boundaries. In some cases (SF, NYC) the whole metro area is included while in others (Auckland, Toronto, LA) only city proper area of the city (equivalent SF city proper area has density of 17000 people per km2). Auckland urban area has density of 1100 people per km2 while Auckland metro area (equivalent to SF metro area) has density of only 300 per km2.

    Anyone who ever visited some of these cities can clearly notice big lies on this chart. LA having less urban sprawl than NYC or SF -lol-

      • the problem with this approach is that it is completely arbitrary:

        in some instances they included some remote low density rural towns that were never considered part of metro areas while they did not included similar towns in other instances. For example: extremely low density unincorporated community (not even a town) of Twin Rivers NJ 100km from NYC is included (demographia is the first and the only institution that ever included Twin Rivers in NY metro) while LA doesn’t include Menifee, Hemet, Moreno Valley or cities and towns from Ventura county only 50km from LA. in case of SF it’s even worse, they included some remote and rural towns like Livermore and Concord.

        Just look at satellite image of some of the towns included into NY metro (Danbury CT) and you will see that these rural towns are completely surrounded by tens of km of agricultural land or bush and cannot not be included into NYC urban area unless you have an secret agenda to promote – as Demographia has. Once you include town like Danbury CT where every block is two acres large it’s easy to fix density numbers to whatever your need is.

        Have you or people from Demographia ever visited some of these places? Do you really think NYC is less dense and has more urban sprawl than LA, Toronto, Sydney or Auckland?

  9. tristanjjones

    In the case of Auckland and other cities in Australia and New Zealand. I believe building out is the only politically viable option. Since building up on a large scale is going to meet very stiff resistance from people living in the older quite relatively low density suburbs.

    Also the NIMBYS compared to the BANANAS sentiment against densification in their neighbourhoods is somewhat understandable. In my opinion Australian cities still had a responsive property market, a lot of the densification that has been done or is going to be done would have not occurred.